Thursday, June 30, 2011

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Eric Mindich's hedge fund firm Eton Park Capital has opened a brand new position in 3Leg Resources. According to a UK regulatory filing made on June 28th, Eton Park now own 3.49% of 3Legs' outstanding shares.

3Legs Resources is involved in the exploration and development of unconventional oil and gas resources with a particular focus on shale gas in Europe. Poland is the group's main country of operation.

The company was admitted to trading on London's AIM market on June 14th, so it seems likely that Eton Park acquired their shares via the placement.

Tuesday, June 28, 2011

Nelson Peltz's Trian Fund Management just filed an amended 13F with the SEC and in it they reveal a stake in Kraft (KFT).

The new disclosure shows Trian owning 12,176,335 shares of KFT as of March 31st, 2011. Adding this data to their original filing, Trian's KFT position represented 18.3% of their reported assets at the time.

Bill Ackman's Pershing Square Capital also owns a sizable stake in KFT and likes the opportunity for organic growth and margin expansion. You can view Pershing's presentation on Kraft here.

Trian Fund Management omitted the Kraft position in their original 13F filed on May 16th which included a note that reads, "confidential information has been omitted from this Form 13F report and filed separately with the Commission."

Trian most likely arranged this treatment with the SEC because they were still in the midst of acquiring their position and felt public disclosure would boost prices. Other large investors have utilized this technique in the past, with the most notable being Warren Buffett.

Also, we recently detailed a scenario where Bill Ackman's Pershing Square Capital filed information on their Family Dollar (FDO) position confidentially with the SEC and released the info to the public at a later date. It seems more and more prominent funds are being granted this treatment by the SEC so we'll have to monitor a potential growing trend.

Jason Mitchell of GLG Partners was recently named one of Institutional Investor's 2011 rising hedge fund stars. He appeared on CNBC to talk about sustainable picks as well as how he approaches socially responsible investing.

He ponders, "What is sustainability? What is the opportunity set around that? And how we've defined it is: sustainability is the investment required to address demographic, environmental and social change."

He says there are around 8-10 sectors that reflect that, mentioning healthcare, education services, and agriculture.

Regarding healthcare specifically, Mitchell notes that "it's defensive, there's value, there's a lot of optionality, but even outside of the US, we're sitting on the cusp of a really interesting start of privatization in Germany ... probably two-thirds of German public hospitals are losing money and as a result, under investing. And the government is slowly, very deliberately and thoughtfully privatizing some of that and there are two companies out there. I mean, these are mid to large cap companies and they know how to run it. They reinvest, increase doctor count, and as a result get a more efficient balance sheet."

Embedded below is Mitchell's video interview with CNBC (email readers need to come to the site to watch the video):

His commentary also draws comparisons between the cost of home ownership in the US and UK and he implies that house builders are good value in the UK.

Crispin Odey writes,

"Over a month most of the macro-economic news has appeared to be disappointing. The unemployment rate in the USA has failed to fall, China has slowed down, the Japanese tsunami has turned out to have a greater influence on world industrial production than was hoped and banks have produced worse numbers than anticipated. The stockmarkets are down, government bonds are up and people are generally more nervous.

Equity markets have performed better than I could have expected in the face of these uncertainties, especially with Greece still being a problem. Stock picking is still working.

Our thesis of steamy convergence of third world to developed world incomes remains the template by which we measure recovery. The overheating of the emerging market economies, thanks to the rise in energy costs, has now been followed by a slow down but we still remain happy that the 20% wage increases in emerging markets against the flat wage growth in the west will continue to power world growth. The 5% cost inflation in the west that we suffer for now, will ultimately rebalance the world economy.

I continue to find companies to invest in. This quarter saw Henri de Castries of Axa approve the sale of their Canadian life business, and pull out of the life business in the UK, too. With such a new commitment to a 12% return on capital across all business lines so evident in management's mind, a discount to book value of 25% seems harsh. Meanwhile Zurich Financial, who have long practiced virtue, yields 8% in Swiss Francs.

Banks are as yet not allowed to have a business model but they are certainly cheap enough if a business model evolves in the future. House price moves in the USA which have ensured that the average house sells on only 2.4 times disposable incomes makes this an interesting market for bottom feeding. The ending of Fannie Mae / Freddie Mac's reign in the third quarter of this year should allow commercial banks to re-enter this market. Even if net interest margins rose to 400bp, buyers would still be paying less than they would be if they were renting, and that after paying a 4% redemption yield!

In the UK, affordability is still a problem with house prices 4.4 times disposable income vs. USA's 2.4 times, but interestingly prices only reflect the fact that in the USA, mortgage repayments include a 4% repayment of principal and so average cash costs are 7% of 240 or 16.8% of disposable incomes. In the UK, interest only mortgages are around 4%, and 4% of 440 =17.6% of disposable incomes. Rent typically costs around 22% of disposable incomes. So in both countries it is cheaper to own than to rent, provided that interest rates do not rise before wages rise. Since this is our view it makes sense to investigate further.

House building is running at around 110,000 down from 220,000 three years ago. Supply is running far behind national demand. House prices are no longer at a premium to old house prices, despite much lower running costs. With the house builders you are seeing 27% profit margins of 2007 now down to 7%, thanks to the need to swallow a 10% loss on 3 year old land banks. The shares are typically trading on 70% of sales, 10 times pre-tax profit. New land purchases at lower prices, should allow margins to rise to 17%. To find a business which is doing okay now, when real wages are falling, and not having to overpay, makes me excited. The day that we become competitive globally, these house builders should benefit from rising wages.

Meanwhile, the good news with the fund is that companies in our portfolio continue to be bid for. News of Avis, the American 'parent', bidding 60% more than the last share price for its European 'child', was welcome news for a holding that was worth just over 1.3% of the fund. No hooks, no fish. 31st May 2011."

Crispin Odey's UK hedge fund Odey Asset Management has opened up a position in RSM Tenon Group (LON: TNO). Per trading on June 23rd, this brand new position is equivalent to 5% of RSM's outstanding shares.

UK-based hedge funds have been busy as of late as Lansdowne Partners was out buying Mwana Africa as we detailed last week.

Per Google Finance, "RSM Tenon Group PLC, formerly Tenon Group PLC, provides a range of professional and business services. The Company has five segments: audit, taxation and advisory; turnaround and corporate recovery; risk management; financial management, and specialist tax. It provides solutions to clients that range from individuals and entrepreneurially-led owner-managed businesses to corporations and public sector organizations."

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